Chinese developers refill war chests

Greentown China, China South City and CIFI collectively raised $1.1 billion on Monday, boosting working capital capabilities amid a buoyant onshore housing market.

Asia’s high-yield market has been inundated by Chinese property developers in the first two weeks of 2014, and Greentown China, China South City and CIFI joined the gang on Monday.

Collectively, the three Chinese real estate companies sold $1.1 billion worth of dollar paper on Monday in an effort to replenish their land banks, supported by improving onshore housing conditions, as well as for refinancing purposes.

“Demand in tier-one and some tier-two cities, including provincial capital cities, should remain resilient over the next few years,” said Bei Fu, Hong Kong-credit analyst at Standard and Poor’s. “Although housing prices in the prime locations of tier-one cities are high, most of the properties for sale are less centrally located, and pricing is therefore more affordable.”

In 2013, housing prices and sales in large Chinese cities shot up as homebuyers returned to the market after concluding that the central government was unlikely to impose further property curbs. Total property sales rose 26.3% to Rmb8.14 trillion ($1.34 trillion) in 2013, up from the 10% recorded in 2012.

Residential real estate investment was a positive for growth in 2013, and this is expected to continue into 2014, highlights Standard Chartered in a report released on January 20.

“The trend is still our friend,” said Wei Li, Hong Kong-based China economist at StanChart. “Developers’ land purchases were up 8.8% year-on-year in 2013, which should support construction in 2014.”

Over the weekend, official data showed the average price of a new home rose 9.2% last year, with the biggest cities recording the largest gains. For example, average home prices in Guangzhou surged the most - by 20.1%, while Beijing prices were up 16%.

The Asia ex-Japan G3 high-yield space has seen a total volume of $3.35 billion – through eight deals – this year, according to Dealogic data. Chinese property companies account for all of the transactions.

Greentown perpetual

Moon Wise Global, a subsidiary of Greentown China, raised an unrated $500 million perpetual, with a callable option in the fifth year on Monday.

The Reg-S note received a whopping $3.8 billion order book, from 137 accounts, as a result of the bond’s investor-friendly structure, where there is a step-up of 500bp in the fifth year, say sources close to the deal.

“This gives investors a lot of comfort that the transaction is going to be called and is a result that investors respond very positively to,” said the source.

Sources added that Greentown’s perpetual was priced very tightly at a yield of 9%, having tightened from an initial price guidance of 9.25%.

Although this is 25bp above its existing March 2019 senior notes – which were trading at a cash price of 100.75, equivalent to a yield of 7.82% at the time of pricing – this is still relatively competitive based on the fact that investor-friendly structures normally price at a premium of 150bp-175bp.

Private banks and financial institutions were allocated 74% of the notes, followed by fund managers at 17% and corporates with 9%. Asian investors accounted for 92% of the paper, while the rest went to Europe, according to a term sheet.

BNP Paribas, Deutsche Bank, Goldman Sachs, HSBC, Macquarie, StanChart and UBS were the joint bookrunners of Greentown’s deal.

China South City bonds

China South City raised its largest ever dollar bond of $400 million on Monday, riding on the back of Tencent’s equity investment into the Chinese property developer.

“The bond is an incredibly successful deal, which came at a time that is really transformational for China South City,” said a source close to the deal. “This is the company’s largest bond ever and is a huge indictment on the way the market now views the company and its strength.”

Tencent, Asia's largest internet company by market value, announced on January 16 that it will be spending about HKD1.5 billion ($190 million) for a 10% stake in China South City. Both companies will leverage their strategic resources for extensive collaboration in services, including e-commerce, outlet services for branded goods, online payment, and warehousing and logistics arrangements.

As a result of the positive news, China South City’s existing 2017s, which were trading at 10.2% prior the strategic investment announcement, tightened to about 7.7% and were used as comparables for its new five-year non-call three deal.

After adjusting for the curve, the new bond would price 65bp above its existing notes at about 8.35%. After offering a slight premium, the developer priced its new note at 8.5%, which tightened from an initial price guidance of 8.625%.

China South City’s deal received an order book of $1.7 billion from 100 accounts, according to a term sheet. Fund managers subscribed to half of the notes, while private banks took 41%, financial institutions 7% and others 2%.

Citi, HSBC and UBS were joint global coordinators and bookrunners of the B+/B+/B2 rated transaction. Other bookrunners include Bank of America Merrill Lynch, Credit Suisse and ICBC International.


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